A new IS project has been proposed that will produce not only cost savings but also an increase in revenue. The initial costs to establish the system are estimated to be $500,000. The remaining cash flow data is presented in the following table.

a. Using a spreadsheet program, calculate the return on investment (ROI) for this project. Assume that the cost of capital is 7 percent.
b. How would the rate of return change if the project delivered $50,000 in additional revenue and generated cost savings of $25,000 in the first year?

Year 1 Year 2 Year 3 Year 4 Year 5 $200 $250 $ 50 $150 $ 50 $ 50 $ 75 $ 75 Increased Revenue Cost Savings Depreciation Initial Expense $0 $100 $0 $ 50 $ 75 $0 $ 75 $500